Lack of natural gas supply could be major issue for Nova Scotia

With Deep Panuke (pictured) and Sable Island natural gas production wrapping up in the next two years, getting natural gas in Nova Scotia may become more costly.
(CONTRIBUTED)

Tom Dewtie needs to make a lot of steam.

The steam runs the convoluted contraptions that somehow turn spruce trees into kraft pulp in the big mill at Abercrombie Point.

To make steam he needs to burn something.

So four years ago Northern Pulp spent $5.1 million running a natural gas pipeline into its Pictou County plant and converting boilers so that they can burn natural gas — which is cleaner and cheaper than oil.

“For the majority of the summer I’ve been importing Marcellus Shale gas from Pennsylvania and some from an exchange in Ontario,” said Dewtie, supply manager for Northern Pulp.

Sable Island and Deep Panuke will be wrapping up production over the next two years.

With no domestic supply, all of this province’s natural gas will be coming up from Massachusetts in the Maritimes & Northeast Pipeline.

Before it gets into the pipeline originally built to carry Sable Island’s gas south, it will have to pass through a choke-point near Boston.

And that’s going to be expensive for the major industries, like Michelin Tire and Oxford Frozen Foods, along with universities, hospitals and homeowners who have converted to heat with natural gas.

“You are at the end of a long pipe coming out of the worst gas market in North America,” said Tom Adams, a Toronto-based energy analyst.

“What this means is that while the outlook for natural gas customers in just about every other area of North America is in the range of $2-3 (U.S. per gigajoule), in Nova Scotia it looks to me like the long-term prospects are in the $6 to $9 range.”

It’s a grave, he said, that Nova Scotia dug for itself when it banned hydraulic fracturing in 2014.

Nova Scotia will be paying a premium to buy fracked natural gas from Pennsylvania and Western Canada due to a shortage of pipeline capacity in Massachusetts while the rest of North America gets it cheap

“It’s compounded by the decision to not go ahead with the Energy East pipeline — it’s a double whammy for you,” said Adams.

“The rest of your North American competitors will have cheap fuel — every one of them.”

That choke-point in Massachusettes isn’t about to go away.

A $3.2-billion pipeline expansion called Access Northeast that was meant to increase the amount of gas coming into Massachusetts was shelved in June due to arguments over who would pay for it.

Kinder Morgan dropped a similar project in 2016.

But our world isn’t about to end overnight.

Consumers like Dewtie at Northern Pulp and John Hopkins at Heritage Gas have to buy two things — space in the pipeline and the gas itself.

They go about it two different ways.

Dewtie buys gas at the spot price — what it’s trading for on any given day — and pays tolls to the owners of every kilometre of pipeline it passes through on its way to Northern Pulp.

Heritage Gas buys pipeline capacity in contracts of up to 20 years all the way back to whoever they’re buying the gas from, and then buys the gas in long-term contracts.

“These long-term contracts can be worth up to $100 million,” said Hopkins.

Heritage’s parent company, Alta Gas, has deep pockets.

“This past winter we contracted for about 60 per cent of our gas supply from Alberta,” said Hopkins.

“We are able to bring our gas cost down fairly materially by contracting both short and long term.”

That gas comes to Nova Scotia via U.S. pipelines. It still has to travel through Massachusetts.

As of Nov. 1, residential customers of Heritage Gas will be paying $8.18 per gigajoule while commercial customers will see an increase from $3.10 per gigajoule to $4.60. No matter how cold it gets in Boston this winter, Heritage has reserved space in the pipeline system to bring gas north.

Dewtie, meanwhile, is more exposed to wild fluctuations of gas prices in the Boston area.

It’s cheap in the summer when there’s less demand to heat homes and produce electricity.

“In the winter of 2015 we saw prices spike to $25 to $30 a gigajoule — $20 dollars higher than where it should be,” said Dewtie.

“The supply crunch happens now every winter. But as we’re not producing gas, that impact becomes greater.”

When the price gets very bad, Northern Pulp can switch from natural gas to oil but it’s just as expensive, time consuming and harder on equipment.

The highly controversial Alton Gas storage facility near Stewiacke would alleviate the wild fluctuations somewhat by allowing gas to be bought at cheaper summer prices and stored in hollowed-out underground salt caverns, to be resold in the winter.

While currently under construction, that project remains beset by legal challenges and protests over concerns that the process of hollowing out the caverns would see too much salt water poured into the Shubenacadie River.

For its part, the Maritimes & Northeast Pipeline is also expanding capacity to bring gas north in anticipation of the end of Deep Panuke and Sable Island through its Atlantic Bridge project.

“Those will all provide some protection from spot prices but they won’t protect you in the long term from long-term trends,” said Adams, because gas still needs to travel through Boston and there’s not enough pipeline capacity to get it there.